Many companies stand to benefit from artificial intelligence, but there are relatively few pure-play AI shares on the ASX.
Artificial intelligence (AI) attempts to replicate human intelligence via a computer but with greater speed and precision. This technology is used to program machines to answer questions, solve problems, and do work previously undertaken by humans.
Rapid innovation in the sector is disrupting the ways we live and work and piquing investor interest in artificial intelligence.
In this article, we'll look at investing in ASX stocks in the artificial intelligence sector and why they may be worth considering for your portfolio.
What are ASX artificial intelligence stocks?
Companies listed on the ASX involved in the artificial intelligence industry are known as AI stocks. They can be chip makers, software companies, or firms that utilise artificial intelligence in their applications.
Enterprises across the globe are being disrupted and transformed by innovations such as machine learning, smart applications, and autonomous vehicles. Although most companies stand to benefit from the use of AI, relatively few have made it a central part of their business.
United States tech giants Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOGL, GOOG) are heavily involved in developing artificial intelligence.
They are cloud computing companies that sell AI analytical services to customers. Amazon uses artificial intelligence to customise its retail offerings and recommend products to site visitors. Alphabet (the parent company of Google) uses artificial intelligence to deliver relevant web search results and for digital advertising.
Why invest in artificial intelligence shares?
The artificial intelligence market is big – valued at US$60 billion in 2021 – and growing.1 According to Grand View Research, the global AI market is expected to grow at a compound annual growth rate (CAGR) of 38.1% from 2022 to 2030.2
Research and innovation are driving the adoption of advanced technologies in industry verticals such as automotive, retail, healthcare, manufacturing, and finance. Artificial intelligence is now being infused into everything from self-driving vehicles to medical equipment.
Growth opportunities with AI stocks are significant. The rate of innovation is accelerating as accessibility to rich data sets improves. Increasing usage of cloud-based systems to store large volumes of data has allowed for expansion in analytical capabilities enabled by deep learning.
The COVID-19 pandemic has further accelerated the growth of online spaces where consumers can congregate to collaborate and connect.
Top AI stocks on the ASX
There are only a dozen or so stocks listed on the ASX that operate predominantly in the AI space, although we can expect more to list in coming years. They form part of the information technology sector of the ASX. Here are three top AI shares ranked by market capitalisation from high to low.
| Company | Description |
| Brainchip Holdings Ltd (ASX: BRN) | Focused on the commercialisation of a neuromorphic processor that performs artificial intelligence |
| Appen Ltd (ASX: APX) | Provides and improves data used for the development of machine learning and artificial intelligence products |
| Bigtincan Holdings Ltd (ASX: BTH) | A leading data centre operator poised to benefit from the structural shift to the cloud |
Brainchip
Brainchip Holdings' principal focus is on the commercialisation of the Akida Neuromorphic Processor, which is, in essence, a spiking neural network. Integrated into computer chips, the Akida delivers artificial intelligence reasoning and conclusions from sensor-captured data.
It provides ultra-low power and fast artificial intelligence computing solutions without the need for a continuous internet connection. The Akida can be used in vision and audio applications in various industries, including automotive, robotics, aerospace, and cybersecurity.
The global shift to AI as a new standard will bring increased opportunity for Brainchip, with an industry report predicting the Artificial Intelligence of Things solutions and services market will be worth more than US$1 trillion by 2030.3 Brainchip announced the launch of the second generation of its Akida platform in March 2023.
The new generation Akida allows designers and developers to do things that were not possible previously, taking a substantial step toward a cloudless Edge AI experience. The launch significantly extends Brainchip's competitive advantage in neuromorphic AI.
Appen
A market leader in providing data for the artificial intelligence lifecycle, Appen offers a broad range of data modalities. The company continues expanding its capabilities following its strategic pillars to grow, automate, expand, and evolve.
Appen battled a challenging external operating environment in 2022. This was a year marked by weaker digital advertising demand and a slowdown in spending by some major customers. In May 2023, the company admitted weaker conditions had persisted with the first four months of 2023 more than 20% below that of the prior corresponding period.
The share price plunged in the wake of this revelation. A week later Appen announced a $60 million equity raising to support a strategic refresh and return to profitability. Proceeds from the raising will be used to fund one-off costs associated with cost reductions. They will also provide balance sheet flexibility and general working capital to support Appen's return to profitability.
Bigtincan
Bigtincan provides artificial intelligence sales enablement software. It seeks to deliver branded buying experiences that are personalised and engaging to guide people to make the best decisions.
Customers such as Nike Inc (NYSE: NKE) and Guess?, Inc (NYSE: GES) utilise Bigtincan software to enable customer-facing teams to prepare, engage, measure, and improve the buying experience.
In July 2023, the company announced that it had completed the acquisition of Modus Engagement, Inc. This brings unique technology, a strong customer base, and cost synergies, to the business. Bigtincan has also engaged a financial advisor to manage expressions of interest from third parties interested in buying Bigtincan.
The company has provided guidance for FY23 of annual recurring revenue (ARR) in the range of $137 million to $143 million. Cash flow breakeven is expected to be achieved in Q4 FY23.
What might the future hold for AI shares on the ASX?
According to PWC, the future of AI is big business. It predicts a 26% boost in gross domestic product (GDP) for local economies from AI by 2030, stating the technology can transform productivity and the GDP potential of the global economy.4
Continuous research and innovation directed by the tech giants are driving the adoption of advanced technologies in industry verticals such as automotive, healthcare, retail, finance, and manufacturing. For example, healthcare systems are widely adopting artificial intelligence and machine learning algorithms to predict diseases accurately in their early stages based on historical health datasets.
AI is still in an early stage of development, although some early adopters are more advanced. This means a company that isn't even in business could become a market leader in a decade. In the meantime, the simulation of human intelligence by machines will continue to improve, using algorithms to automate and perform tasks commonly done by humans today.
Pros of investing in AI shares
Accelerated adoption: The COVID-19 pandemic accelerated AI adoption, and it is becoming ubiquitous across business processes.
Involvement in revolutionary technology: AI is being touted as having the potential to transform the world. Investors that get in early are in the best position to benefit from this transformation.
And the cons
Volatility: Artificial intelligence shares, like ASX tech stocks more broadly, tend to be volatile. This means share prices can fluctuate significantly in response to economic or market factors.
Specialist technology: It is not easy for non-experts to keep up with the different types of artificial intelligence, such as machine learning, predictive modelling, and pattern recognition, and their impact on businesses on the ground. This means carefully researching ASX shares in the artificial intelligence space is vital.
Are ASX artificial intelligence shares a good investment?
Whether artificial intelligence shares are a good investment depends on your financial situation and investing goals. Australian shares in the artificial intelligence space may be more suited to investors who are comfortable with risk and have a longer time horizon.
If you want exposure to the sector, but don't want to pick stocks, exchange-traded funds (ETFs) provide exposure to companies leading the industry. Some options include BetaShares Global Robotics and Artificial Intelligence ETF (ASX: RBTZ) and Global X Robo Global Robotics & Automation ETF (ASX: ROBO).
